U.S. will reach federal debt limit on New Year's Eve

MCCLATCHY NEWSPAPERS

Published 7:37 pm, Wednesday, December 26, 2012

Photo: Haraz N. Ghanbari, STF

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FILE - In this July 26, 2012, file photo, Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, before the Senate Banking Committee. A temporary reduction in Social Security payroll taxes is due to expire at the end of the year and hardly anyone in Washington is pushing to extend it. Neither Obama nor Romney has proposed an extension, and it probably wouldn?t get through Congress anyway, with lawmakers in both parties down on the idea. (AP Photo/Haraz N. Ghanbari, File) less

FILE - In this July 26, 2012, file photo, Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, before the Senate Banking Committee. A temporary reduction in Social Security payroll taxes ... more

Photo: Haraz N. Ghanbari, STF

U.S. will reach federal debt limit on New Year's Eve

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WASHINGTON - The government will reach the $16.4 trillion debt limit on Monday, Treasury Secretary Tim Geithner told congressional leaders Wednesday, adding a new and possibly dramatic wrinkle to negotiations aimed at averting the "fiscal cliff."

If no alternatives are adopted, Bush-era income tax rates will expire at the end of the year and $109 billion in automatic spending cuts will take effect Jan. 2.

In his letter, Geithner said the Treasury "will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations."

These could include a temporary halt on payments on federal pensions and a temporary suspension of sales of special-purpose securities issued by the Treasury.

It was unclear what impact this news would have on negotiations to avert the fiscal cliff, the term that's been used to describe the combination of Bush-era tax cuts expiring and automatic spending cuts taking effect unless alternatives are adopted.

Geithner explained that the special measures "can create approximately $200 billion in headroom under the debt limit. Under normal circumstances, that amount of headroom would last approximately two months."

But, he said, "given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures. At this time, the extent to which the upcoming tax filing season will be delayed as a result of these unresolved policy questions is also uncertain."

Last year, negotiations to extend the debt ceiling dragged on for eight months, damaging the economy and resulting in a downgrade of the U.S. government's creditworthiness.

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